Anuj Puri of Jones Lang LaSalle India explains the trend of Indians investing in real estate projects abroad. He talks about how India is becoming a challenging place to invest on the back of high loan interest rates and expensive metro living conditions.
Jones Lang LaSalle India
The real estate market in many countries offers very lucrative investment prospects, with various offers and options. Apart from that, Indians buying property abroad can often avail of citizenship in the host country. This factor has considerable aspirational value with many.
The aspiration factor aside, property in more and more locations within Indian metros has become enormously expensive. Moreover, interest rates for bank loans are already proving to be a stumbling block and may rise further with the future revision of RBI norms. In comparison, an Indian wishing to buy a property in New York, London or Singapore can avail of the considerably lower interest rates of local banks in those countries.
Also, many foreign property markets are more transparent than our own, so investors can get 'clean' deals much faster and easier. Investment in property abroad makes sense for those who are employed or have business interests in the country of choice. Indians who have settled or are planning to settle abroad permanently are, of course, prime candidates.
Who Is Buying, And Where Are They Buying?
The broad profile of Indians who are looking at buying properties abroad would include business owners, professional property investors, mid-to-top level company management and high networth individuals. A very large component of buyers is also comprised of people whose children study in those countries.
Singapore, Malaysia, New York, Dubai and various cities in the UK – predominantly London - are the preferred destinations for Indian property buyers. Because of the current ceiling on how much an Indian can invest abroad in a financial year, central city locations are out of reach for a large number of aspiring Indian buyers.
This makes peripheral locations, which tend to be cheaper, attractive to such buyers. The US or the UK are doubtlessly closest to the hearts of most Indians hoping to buy property abroad. However, when these are out of reach, Dubai is definitely among the most preferred among realistic property investment destinations for Indians.
The current limit on Indians for investing abroad continues to be USD 200,000 per annum. This ceiling is not for investment in real estate alone, but applies to any kind of investment in a foreign country. The limit applies to individual buyers, so the investable amount doubles in the case of couples. The Indian Government may consider relaxing the ceiling further if it perceives increased interest by Indians in investing in foreign properties.
Indians often have the option of entering into joint ventures with local operators in foreign countries such as Mauritius, Bhutan and Sri Lanka. The UAE also offers such a facility in some quarters. Entering into a JV with a foreign entity on its home turf can lead to vastly increased investment scope (beyond the USD 200,000 ceiling now prescribed by the RBI) and generate higher profitability.
Precautions For Investing In Property Abroad
Indians buying property in a foreign country should remember that there are investment and liability risks they may be exposed to. In some countries, land laws for investment in immovable properties can lack transparency and be quite complicated. It is inadvisable to invest in any kind of project announced by a company or other seller that has no physical representation on Indian soil. The exception would be where one has personally established the legal and market bona fides of the seller.
Secondly, one must keep in mind that most foreign property markets have their individual regulatory and permission mechanisms. While the RBI does permit investment of up to USD 200,000 per annum, one must establish whether one is eligible to invest in the country of choice to begin with.
Apart from the above, the general guidelines for any property investment also apply:
• Ensure that the actual location of choice has sufficient appreciation potential
• Establish the suitability of the neighbourhood (even more important in a country whose social dynamics one is unfamiliar with
• Ensure that the property is free of litigation and has a clear title.